Howes J:

On 15 January 1934 the bankrupt who was carrying on the business of a cycle dealer in Ipoh under the name of Hock Leong Hin Tong Kee, wrote to the respondent, Hoo Choo as follows:

As I have settled account with you for the sum of $5,000 for which I have given you an IOU for $5,000 of even date, I hereby authorise you to remove from my shop, Hock Leong Hin Tong Kee at any time, goods to the value of $7,500 as collateral security without let or hindrance.

The bankrupt had been borrowing money from the respondent since 1928, and the above document was given to show the position of affairs between her and the respondent on 15 January 1934. The bankrupt admitted that she used some of the money in paying off previous loans from other people, in the expenses of her daughters' marriages, and for domestic expenses. A little of it was used in her cycle business, but no entry as regards this was made in her books of the business.

She admitted that since 1932 her business had been run at a loss; and it is clear that on the date of this document the bankrupt was unable to meet her liabilities.

Prior to 12 April 1935 the respondent demanded repayment, and on that day he sent the bankrupt a notice requiring her to pay the $5,000 due on the IOU within 24 hours from receipt of the notice "otherwise action will be taken against you to take possession of the goods from your premises to recover the above money and any subsequent expenses that may be incurred in connection therewith."

On 14 April 1935 the respondent came to the bankrupt's premises and removed goods to the value of $5,036. A document was prepared in Chinese, purporting to represent a sales receipt for the goods removed, as though the transaction had been a cash sale, and acknowledging payment by respondent of $5,036. In fact, no money passed on this occasion, except the $36.

The bankrupt, in her evidence, stated that she knew the letter of the 15 January 1934, was connected with her debt to the respondent and was security for it; and when she received the notice she thought she was bound by the letter, and that was why she delivered the goods to the respondent.

On 17 April 1935 the bankrupt filed her petition in bankruptcy; and on 26 April 1935 she was adjudicated bankrupt.

The question in this case is similar to that in the case of Sime Darby & Co., Ltd. v. Official Assignee of the Estate of Lee Pang Seng, AIR 1928 PC 77, viz Was the transfer of these goods to the respondent made "with a view of giving such creditor a preference over the other creditors" within s. 46(i) of the FMS Bankruptcy Enactment, 1912, and therefore to be deemed fraudulent and void as against the Official Assignee? As was stated in the above case:

The question to be determined is one of fact: Was the dominant motive actuating the debtor in making the transfer a desire to prefer the particular creditor or was it of a different character? As the solution of this question involves an inquiry into the state of a man's mind, and as it must very seldom be the case that there is direct evidence on the point, the decision generally depends on the inference properly to be drawn from the circumstances attending the transfer as established by the evidence.

There can be no doubt that the bankrupt, when she gave the respondent the letter on 15 January 1934, was under the impression that it was some sort of legal security for the debt. Nor can there be any doubt that, at the date of the actual transfer of the goods, the bankrupt must have contemplated her bankruptcy, since she filed her petition three days later.

The law as to fraudulent transfers was considered at some length by Warrington LJ in the case of Re Cohen; Ex parte Trustee [1924] 2 Ch 515, 536 in which he quoted Lord Esher Mr. in New, Prance & Garrard's Trustee v. Hunting [1897] 2 QB 19, 27:

The doctrine with regard to fraudulent preference is well known. The question whether there has been a fraudulent preference depends, not up